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The Global Dollar Shortage is Here – And It’s Becoming A Big Problem
The Global Dollar Shortage is Here – And It’s Becoming A Big Problem
Another week and another signal flashing red to deal with. . .
The credit market – in my opinion – is indicating an inevitable ‘crunch’ coming up. And even worse – we’re seeing the global dollar shortage deepening.
Many readers know I haven’t exactly been shy about focusing on this dollar shortage problem all year – you can read more here, and here.
Personally – I think this may be the trigger that kicks off a brutal, worldwide, financial crisis. . .
For instance – just look at what’s happened with Emerging Markets because of a tightening Federal Reserve, a stronger dollar, and drying liquidity.
Don’t forget – a dollar shortage is synonymous with disappearing liquidity. Which means we can expect more violent and sudden market crashes to occur – just like we saw last over the last two weeks.
Stock markets (and bond markets) around the world took big losses. The only thing that really outperformed was gold.
The fear of rising ‘real’ U.S. interest rates and slowing economic growth (especially from China) is making investors rethink their positions.
Not to mention the cost of borrowing short-term dollars via LIBOR (aka London Interbank Offered Rate) is indicating aggressive financial tightening.
Take a look at the 3-month U.S. dollar LIBOR rate – it just had its biggest one day jump since late May.
And even more startling – it’s now at its highest level since 2008.
So what does this mean?
Well – it’s indicating that the short-term borrowing of dollar denominated debt’s getting very expensive. And investors – especially overseas – are finding it harder and costlier to get their hands-on U.S. dollars.
This isn’t a big surprise – but what’s making me worried is just how costly and scarce these dollars are becoming. . .
Corporations worldwide borrowing dollars for business operations. And even ordinary citizens with mortgages and credit cards (which are mostly driven by LIBOR) will face higher interest payments.
…click on the above link to read the rest of the article…
The Global Dollar Funding Shortage Is Back With A Vengeance And “This Time It’s Different”
The Global Dollar Funding Shortage Is Back With A Vengeance And “This Time It’s Different”
The last time the world was sliding into a US dollar shortage as rapidly as it is right now, was following the collapse of Lehman Brothers in 2008. The response by the Fed: the issuance of an unprecedented amount of FX liquidity lines in the form of swaps to foreign Central Banks. The “swapped” amount went from practically zero to a peak of $582 billion on December 10, 2008.
The USD shortage back, and the Fed’s subsequent response, was the topic of one of our most read articles of mid-2009, “How The Federal Reserve Bailed Out The World.”
As we discussed back then, this systemic dollar shortage was primarily the result of imbalanced FX funding at the global commercial banks, arising from first Japanese, and then European banks’ abuse of a USD-denominated asset-liability mismatch, in which the dollar being the funding currency of choice, resulted in a massive matched synthetic “Dollar short” on the books of commercial bank desks around the globe: a shortage which in the aftermath of the Lehman failure manifested itself in what was the largest global USD margin call in history. This is how the BIS described first the mechanics of the shortage:
…click on the above link to read the rest of the article…
